He's learned his lesson about risky loans, but Obama wants to increase research grants

The auto industry isn't very happy with the federal government. After two decades of inaction on the fuel economy, President George W. Bush (R) and his successor, current President Barack H. Obama (D) have pushed legislation through Congress to stiffen fuel economy rules. Those rules have cost the industry billions. But both Presidents tried to make up with automakers by pushing federal funding initiatives that help automakers with the cost of fuel economy research, on the taxpayer dollar.

I. After a Decade and a Half Stall, Bush Kick-Started MPG Progress

A debate of economics aside, the approach seems to be working. In a report to be released today, the U.S. Environmental Protection Agency (EPA) is expected to announce that between 2007 and 2012 fuel economy rose 16 percent, while carbon dioxide emission decreased by 13 percent.

In a report last year called "One Decade of Innovation, Two Decades of Inaction", the Pew Institute points out that there was essentially no gain in fuel economy between 1985 and 2000, despite rising oil prices in the late 1990s. The agency says that this was the result of so-called "Reagonomics", writing:

In the mid-1980s, however, Ford and General Motors lobbied the Reagan administration to lower the standard. NHTSA complied, setting a 26-mpg standard for 1986, prompting Chrysler Chairman Lee Iacocca to declare, “We are about to put up a tombstone: ‘Here lies America’s energy policy.’ ”

(Note: 26 mpg was actually a drop from the 1985 standard of 27.5 mpg for cars.)

But it was another Republican President -- George W. Bush -- who reversed that stall. In his 2006 State of the Union speech he turned heads, commenting:
This Congress must act to encourage conservation, promote technology, build infrastructure.... so America is less dependent on foreign oil.

But for all the moaning and groaning among automakers with EISA, it was about to even stricter with President Obama. President Obama struck down a Bush-era mandate that forbid states from enacting their own stricter standards, paving the way for some states like California to set much loftier targets.

The new President also rolled back the deadline for reaching 34.1 mpg to 2016 in a 2010 CAFE update. Those updates are expected to cost the auto industry $52B USD to implement, while potentially raising vehicle prices slightly and limiting selection to an extent.

President Obama's "test drive" of a Chevrolet Volt back in 2010. [Image Source: AP]

The EPA and NHTSA claim that the 2017-2025 push to 54.5 mpg will save $1.7T USD in fuel costs (although the price impact on vehicles is not mentioned; one report suggest vehicle prices may rise $10K USD by 2025). They say that by 2025, America will have reduced its oil consumption by 2 million barrels per day. They add that by cutting 2 billion metric tons of carbon dioxide emissions over the same period society will have "saved" $326-451B USD (operating on the controversial "carbon credits" model).

Some fear the new fuel economy standards may cost lives, as automakers often reduce frame integrity during weight cutting, and also tend to cut out features like extra airbags. Automakers are at least relieved that the President backed of an earlier stricter target of 62 mpg, which they argued could "kill the auto industry".

III. Speech to Call for $2B USD in Research Grants

At a speech at Argonne National Laboratory, a top federally funded research institution in the President's home state, President Obama is today set to unveil a proposal to toss a carrot to the auto-industry, which has at times been less than happy with him.

The video below will go live at 2:30 p.m., along with a corresponding live chat on Facebook.

Located approximately 30 minutes west of Chicago, ANL conducts a great deal of battery, fuel cell, and biofuel research -- a seemingly appropriate setting for the President to unveil a new fuel efficiency proposal at. Under the President's requested proposal for Congress "[$2B USD in] funds would be set aside from royalty revenues generated by oil and gas development in federal waters of the Outer Continental Shelf."

The proposed $2B USD trust may in reality see a far smaller funding total, particularly amid the rancorous federal budget debates. In 2012 President Obama asked Congress for $650M USD for advanced vehicle research, but Congress only offfered up $330M USD.

President Obama's call for vehicle research funding will be held at
Argonne National Lab. in Illinois. [Image Source: ANL]

While hybrids have sold well in recent years, EV sales have disappointed, even as automakers put their marketing might behind the green, yet expensive cars. Critics say that it's good Congress isn't giving more funding, in that the technology appears to be failing. Proponents, conversely argue that the lack of funding is slowing development, which in turns increases EV costs and reduces their performance.

To contrast these funding initiatives with past government transportation funding, recent reports estimated that the government has spent around $1T USD to date to develop the commercial airport system.

If I try to quote each point of yours I want to respond to it's going to be a longer post than anyone will want to read. So let me try to hit just the important points. (and it'll still be too long)

1) You can try to save your way to ensure that "cheap gas" for your kids cars will exist and you may think enforced draconian car economy is the way to do it but the growth of China and India's middle classes and the overall population growth dooms that idea. Not using to excess is a fine thing**, but let's not kid ourselves. Right now there's about 1 billion cars and trucks in the world, excluding China and India. For every 1000 people here in the US, there's about 800 cars and trucks. In Europe the number ranges from 500-600. Norway is about average @ 584. China (in 2012) is about 85/1000 and India about 18/1000. If just those 2 countries alone (forget about Africa and underdeveloped Indonesia {60/1000} or even South America{280/1000}) come up to European levels of car ownership, it will more than double the number of cars on the road drinking gas. Add in the population growth of 50% by 2050 and that perhaps 50% of a barrel of oil is used for gas and you'll need to increase the fleet average for the whole world by much more than 2x to have much of an effect. I agree with you that cheap oil (and gas) is limited. The answer to that isn't to save (it'll help but it's not the answer) but to find alternate ways to run your car.

2) To that end fuel for your car can come from various sources. Germany produced "synthetic" fuel during WWII. The process is well known and developed. More efficient (then used then) processes exist but, like getting oil from shale, they're more $$ than (present) pumping it from the ground. When those prices rise, and stay high enough, a variety of otherwise uneconomic sources of oil and fuel become available. Cheap gas may go away but gas itself won't for a while. Draconian taxation to force savings is not necessary, and in the long run (decades) won't do any real good. Now if you think that taxing gas is a good means to raise the $$s your Govt needs to run (vs other methods of getting those $$s) ... then fine. How Govt's fund themselves and how they spend that $$ is not my argument here.

3) You want to say that $$'s spent on importing oil to make gas is bad for the country. A fair point but I would also say Govt taking that much $$ out of the economy is also bad. And it's not like we don't get anything in the deal, we get "cheap gas". Govt spending tends to be a tad more hit and miss.

4) Govt here (and I suspect where you live as well) doesn't tax house size in anywhere the same level as it does gas (where you live). Here all the taxes perhaps make up 30% of the cost of a gallon of gas. When I was last in Ireland, it was reversed. The actual cost of the gas was perhaps 30% of the pump price, the rest was taxes. Imagine if they taxed the energy used to heat and cool (we have AC here) your house at those levels for the same reason they tax gas.

5) My point re: population is simple. We have 7 billion on the planet now and contend for resources. Adding 50% more by 2050 can't help. The question isn't that we need people to run the economy, it's that too many can't be supported in the lifestyle you have and adding more is a bad thing.

6) As for the US driving all those big gas guzzlers ... the US uses about 50% more oil than does the EuroZone countries (roughly equal populations and GDP). Oil consumption is down these last few years. Car size can, and is, dropping here as gas has stabilized above the $3/gallon. To me that says the US can and does react to the economics. There's no need to pre-emptively force the situation. And who knows, perhaps EV's or fuel cell cars will have a breakthough to make them economic (I won't hold my breath but still ...). The US, and world, will move to the economic choice(s). You may well be asking yourself "why did I pay all that extra for gas all these years ?".

I'd rather be able to make the choice, to spend those $$s, in the fashion I chose (and know is best for my particular situation). I might save (and/or invest) it all to augment my (also) guaranteed pension. And FWIW I, as a principal engineer for a Fortune 100 company for the last 30 years, make a taaaad more than 2x the average pay here in the US. My wife, before she passed away, did nearly as good. I could have a pretty nice Porsche sitting out back. I don't, even though I'm a car guy, because I have other things in life I choose to spend my $$s on. Like my cabin by the lake and my SeaDoo and my boat. Having said that ... I forsee a turbo'd BRX sometime in the future. **The supercharged Mini I drive presently is fun but just a bit too slow. I'll sacrifice the the 30 MPG for 25 MPG and be happy to have that choice. All the above being choices I would be hard pressed to be able to make if gas here were taxed like gas there.

The point i try to make is, even do prizes are still low, they will go up one way or a other over time, when we really hit peak oil, and demand really outstrips supply.

So what we do in Europe and lots of other countries in the world, prepare our people on whats to come.

Also you have to pay tax one way or a other, why not on fuel, as its a good way to lower fuel consumption.Its a pretty common accepted rule here in Europe, the polluter pay's. (or the one that uses more then average)

I think if the oil prizes really go up to 2~300 a barrel, then we are all already driving small cars, where the US is still having mainly guzzlers.

ps. higher prizes means more income for Norway, and better salary for me, and our state owned oil profits go strait in to my pension fund.

So for me one way or a other for my personal circumstances it dose not mater what ever happens, i will be well off anyway.

But in a world with less guzzlers everyone else is also a little better of.